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A brief look at local equity values

The December inflation data was released on Wednesday reflecting a year on year price gain of 6,3% up from 5,8% in November. This rise above the upper range of the current target of 6% is seen as a temporary blip.

On Tuesday the Monetary policy left interest rates at 7%, which kept banks to hold their prime rates at 10,5%. There is a possibility that rates may still drop by a further 0,5% in the next few months.

The extent of the 2009 rebound in valuations is seen on the chart below, which graphs the trailing price to earnings ratio of all the shares listed on the market.

Chart 1 : SA Equities : Trailing PE ratio

Source: Investec

The long run average price paid per R1 of earnings is R11,50. The average since 1990 for R1 of company earnings is R14,38 and at current prices after the strong rebound in 2009, the average price being paid is close to R17 for that R1 of earnings.

The most recent bull market in equities from early 2003 to early 2008 saw a starting point where weak company earnings were rated at low multiples. As company earnings started to improve in 2004, 2005 and 2006 at percentages above their longer term trend, so investors became increasingly willing to pay up for equity ownership.

The result was a strong expansion in company earnings and an expansion in the prices that investors were prepared to pay for these earnings, resulting in a strong bull market for equities.

The question now is have markets been shaken down substantially in the 2008 collapse so that the 2009 rebound is just the start of another multi year bull market?

On a secular outlook it all comes back to earnings. We know that year on year company earnings on the JSE fell 23% to December, while share prices rose 32%.

Because prices tend to move ahead of the actual earnings, there is a high possibility in 2010 that even as company earnings start to “normalise” again from their current levels, that this does not immediately translate into further price gains.

It does appear that the current valuations on the market are looking for strong earnings growth to support the more expensive prices. Surveys are indicating that many institutional money managers are reducing exposure to local equities after the strong rally.

The shorter term outlook for local prices however is less dependent on earnings and valuations and more keenly driven by cash flows. We know that the accommodative monetary policy in developed markets has resulted in foreign inflows into SA bonds and equities driving up prices. How long this persists at current inflows is impossible to predict.

We are now at the end of the first month of 2010. The local JSE is down around 3,6% for the first month of 2010. This has brought down the trailing price to earnings from 17,6 times to the current 16,5 times.

Don’t hesitate to contact us in order to discuss your investment planning, specific investments and how Seed can assist in investment management.

First MPC Meeting of 2010

Gill Marcus, the new Reserve Bank Governor, announced yesterday that interest rates would remain unchanged. The repo rate is currently 7% with the banks’ Prime lending rate being 10.5%.

The consensus view of economists going into the 2 day meeting was that rates would remain unchanged, with some risk that rates would be dropped by 0.5%. What came out of the meeting was that the decision to leave rates unchanged wasn’t a unanimous decision.

Earlier in the week the December inflation came out slightly below consensus at 6.3% compared to the expected 6.5%. The breach above the upper target was largely due to the base effects of the petrol price dropping appreciably in December 2008. Data out today indicated that the Producer Price Inflation (PPI) came in at 0.7% year on year, and is now up for the first time in eight months. This increase is an indication that the country is slowly emerging from the recession.

Going through the statement of the MPC, it is evident that there are still risks to the growth of the economy, but that certain areas are turning the right way. Employment is an exception, but is typically a lagging indicator with an estimated 110 000 jobs shed in the third quarter of 2009. New car sales are showing some signs of growth, as consumer confidences begins to improve, but are still down 7.2% for 2009. Economic indicators appear to be heading in the right direction, but aren’t painting a picture of economic strength.

Eskom has been in the news for all the wrong reasons over the last few years. Their proposed 45% tariff hike per year for three years has been revised to 35% per annum, and now there are strong calls for this rate to be dropped again to 25% per year for the next three years. The SARB has been using the 25% figure in their models and calculations for the last 12 months.

Any allowance above 25% will put an upward shock on the inflation number, and could force the SARB to potentially look at increasing rates sooner rather than later. A tariff hike below 25% and a further weak economy may allow them to entertain the idea of dropping rates once more. The SARB is particularly concerned about second round effects of any increase in electricity, the knock on effect might be underestimated as they are particularly difficult to model accurately.

Lower interest rates are supportive of asset prices, but would be factored in already. The change in rates going forward could very well have an impact on the returns of assets in the future.

Global economics

The US consumer confidence rose 2,3 points in January and with December also up, this is positive but off a very low base. Wells Fargo views the Consumer Confidence Index as a truth detector of economic conditions because it’s closer to actual conditions on the ground.

The most important factor to consumers is the availability of jobs and here there has been little progress.

Let’s look at the views expressed by Pimco on the global economy in their latest market outlook and from a discussion meeting with them this week.

Their view has been for some time that the Old Normal has morphed into the New Normal as the 3 key tenets driving the old normal reversed.

The 3 main drivers of the old normal were:

• deregulation
• globalisation and
• increased leverage

The New Normal started with the bankruptcy of Lehman Brothers on the 15 September 2008. From that date we have witnessed a global tightening in regulations, increased protectionism and deleveraging.

Some points from two separate studies quoted by Pimco, which analysed past financial crisis over decades and even centuries, are telling:

• The legacy of a banking crisis is greater public indebtedness. On average a country’s outstanding debt nearly doubles within 3 years following the crisis.
• On average once a country’s public debt exceeds 90% of GDP, its economic growth rate slows by 1%.
• Typically deleveraging begins 2 years after the beginning of the crisis and lasts for six to seven years.
• Initial conditions are important. With many developed countries displaying high levels of public debt and running excessive budget deficits manoeuvrability is reduced.

On the tightening of regulations, just last week US president Obama threw the global banking industry into turmoil, when he made the call for a ban on banks running their own proprietary trading, hedge funds and private equity.

Following the 1929 financial crisis, the US ushered in what was known as the Glass-Steagall Act, which separated commercial and investment banking. This remained law until 1999, but could now effectively be introduced again.

How does this translate into an investment outlook?

US fund manager GMO, who in the main appears to agree with the views expressed by Pimco are concerned about the ongoing stimulus provided by central banks and specifically the US Federal Reserve, saying “Over stimulus was painful in the 2000 break and extremely painful in 2008, but the Fed soldiers on with its failed strategy like Field Marshal Haig in World War I (“The machine gun is a much over-rated Weapon.”)

The dilemma then is that while global assets are generally on the expensive side, given the ongoing loose monetary policy there is a high probability that they continue to get more expensive.

Across the various stocks and bonds that they provide a forecast for, their view is that US high quality stocks will provide the best real return. “For the longer term, the outperformance of high quality U.S. blue chips compared with the rest of U.S. stocks is, in my opinion, nearly certain” (which phrase we at GMO traditionally define as more than a 90% probability).”

Some points from US fund manager GMO

This week Jeremy Grantham who heads up US fund managers GMO released his quarterly report. As a firm that takes long term views on the expected returns from various asset allocations, they have been very successful and so their statements carry some weight.

At the end of December 1999 they had a 10 year forecast of real returns across 11 identifiable asset classes from emerging market equities, debt, US small caps, the S&P500 etc. The actual 10 year compounded real returns across these 11 asset classes came exceptionally close with the actual ranking having a correlation of 93,6%. Their calculation of the probability of picking the same or better rank order randomly would be 1:550 000.

As an example they had as number 1 asset class performer, US real estate giving a 10% real return per annum. Their second rank was emerging market equities with a 7,8% annual real return. The actual rank over the 10 years saw Emerging market equities at number 1 with 8,1% real return and US real estate at number 3 with a 7,4% compounded return.

They predicted that the S&P500 would give investors a negative 1,9% and ranked it 11/11 on their list. The ranking was spot on with the compounded real return a negative 3,5%.

His commentary raises concerns at the actions of the US Federal Reserve, saying that with low interest rates and rapid money growth, the economy responds reluctantly but asset prices respond enthusiastically. He notes that the Federal Reserve was reckless in facilitating rapid asset booms in the tech and housing bubbles, now “…. The Fed is unwittingly willing to risk a third speculative phase, which is supremely dangerous this time because its arsenal now is almost empty.”

GMO lists some of the lessons that they learned in the past decade:

• The Fed wields even more financial influence than we thought.

• Low rates have a more powerful effect on driving financial assets than on driving the economy.

• The Fed is capable of being extremely out of touch with the real world – “what housing bubble?” – plus more doctrinaire – “no, the low rates had no effect on housing” – than anyone could have imagined.

• Congress is nearly dysfunctional, primarily controlled by large corporations, and hamstrung by the supermajority now routinely required in the Senate.

• Government administrations can be incompetent for long periods.

• Poor leadership can really damage a country’s hard-won reputation in a mere 10 years.

• Obama is not a miracle worker!

• The leadership of major corporations can be very lacking in insight and competence on a fairly routine basis.

• The two time-tested investment tools, value (P/E ratios and P/B ratios) and price momentum, are now much more heavily used and not so reliable as they once were, say from 1977 to 1997.

• Developed countries, including the U.S., are past their prime compared with developing countries: it is indeed a new world order.

• Education and training are the keys to increasing wealth on a sustainable basis and the U.S. is in danger of losing its once large edge here.

• We all live on an island, which can be overexploited and turned into a barren Easter Island if we are not careful. Resources are finite and biodiversity is fragile, and both must be protected. Carbon emissions are the single greatest threat.

• Being a global policeman is expensive, and somewhere between difficult and impossible.

Local and global bonds

Bonds have typically provided a steadier positive return to investors, but this was not the case in 2009, where the local All Bond index produced a negative 1% total return. Clearly a very poor performance compared to the return on the JSE All Share index of 32,1%.

Is there a place for bonds, especially where a Financial Times headline says, “Investors flock to Greek Bond Issue.”

What is so special about bonds being issued by a country that has a ballooning budget deficit and debt that saw orders for the bonds running at 20 billion euros?

The reason for the substantial interest in this five year syndicated bond is the juicy interest rate – in foreign terms. The article maintained that the coupon interest is expected to be in the order of 6,12%. This is apparently some 3,8% higher than the equivalent German bonds and at these levels a record spread.

Where investors identify a riskier issuer of bonds, they will want to be compensated for the additional risk of lending money by way of a higher starting interest rate. The fact is that countries running excessive deficits and high debt levels will need to compensate investors by way of higher interest rates and this is exactly what we are seeing in Greece at the moment.

According to a Standard Bank G10 fixed income research Greece is facing a total debt issuance of some 53 billion euros this year and EU officials are not that excited about Greece’s deficit reduction plans.

According to this report given the precarious state of Greece’s financial position, even a spread of 3% over German bonds is not necessarily a ceiling and they say that “we could easily envisage spreads doubling from these levels, with similar pressure on other markets.”

The Standard Bank view is that outside of the G10 core, “… monetary policy is a more straightforward affair for Australia, Canada, New Zealand and Scandinavia.”

In other words they are saying that these countries have a better grip on their finances and this will come through in the pricing of bonds.

Locally the benchmark government bond is the R157. For the last half of 2009 the yield on this bond traded in a range between 8,3% and 8,45%. This year the yield has weakened and is now trading at 8,57%. Remember that there is an inverse relationship been price and yield, so that where yields climb, existing investors sustain a decline in prices.

While the issuance may have already be factored into local yields, local bonds still don’t appear to be offering very good value.

Gains in resources lift JSE

The JSE All Share had gained 0.6% by midday on Monday, supported by a lift in the gold mining and basic materials sectors.

The rand was trading at R7.56 to the US dollar at 12:00, strengthening slightly in line with a firmer euro. Analysts expect the rand to be range bound for the rest of the session.

Oil had fallen 1.14% to sell at $72.17 a barrel, almost hitting one-month lows as investors continued to worry over potentially tighter monetary policy in China and banking policy in the US.

International markets

On Friday, the Dow Jones fell 2.09% while the Nasdaq lost 2.67%, resulting in the heaviest slide on US markets in ten months. Investors were concerned that plans to cut back on risk taking would dent profits, and uncertainty whether Ben Bernanke would complete another term also spurred selling.

The Japanese Nikkei gave up 0.74% after Google reported poor results, and another technology firm predicted low sales. A stronger yen added to the index’s troubles.

The Hang Seng slid 0.62% as Hong Kong banks and property shares lost ground, after news of higher mortgage rates and fundraising plans from Bank of China.

The British FTSE 100 was flat at noon, up 0.06% after bank and mining stocks recovered some of last week’s losses, offsetting losses in energy counters as investors mulled over bank news from the US.

Share price news

Retailer Tradehold Limited (share code: TDH) was the top mover upwards at midday, gaining 8.91% to sell at R1.10 after 1 477 shares were exchanged in one deal.

Due Diligence – Part 2

Yesterday we covered the ideological aspects of manager selection:
• Long term time horizon
• Value bias
• Capital protection

On a practical side of things some of operational aspects that we take note of during our due diligence are:

• Company ownership: We have seen over the last couple years with the large global banks, that aren’t run by owners, that there is a lack of responsibility in the companies overall well being. Managers are there to maximise their income. Where the firm is owner managed, the owner’s incentives are more closely aligned with those of the investor. There are different risks when investing with an owner managed business, but asking the right questions and doing the correct research can help to mitigate these risks.
• Staff turnover: It makes sense that you would prefer to invest with a team (because ultimately you are investing in someone else’s ability) that is stable, and isn’t having to constantly deal with staff departures and training up new members. Humans generally operate best in stable environments. Note here that having a stable team doesn’t mean that there can’t be vigorous debate around investment ideas – this should be encouraged, but that there should be little or no staff turnover.
• Assets under management: Here it is vitally important that the manager is large enough to be profitable. You don’t want your manager worrying about going concern issues. At the same time you don’t want your manager to merely be an asset gatherer, where all they concern themselves with is profit. A manager that is willing to cap their business at a reasonable size, and then follow through when they reach that level is generally a manager that is confident that performance will do the talking for them.

Once we are satisfied that the manager has a philosophy and process that we are comfortable with, and that they have operational qualities that we admire, we’ll then ensure that they are practicing what they preach by doing some quantitative work.

This quantitative work is mainly numerically driven and in essence seeks to verify that what the managers says he does, is what he ends up doing. If he’s a value manager we want to see that the shares that he’s holding fulfil our value criteria. If he says he doesn’t sell his shares often we will ensure that he isn’t buying and selling on a monthly basis.

There are many aspects of the investment process that you need to research before you can have a fair degree of confidence that the manager is going to a) give you superior performance and b) manage the money in the way manner you expect. Knowing what questions to ask and how to verify those answers is a crucial skill in the investment process. The more knowledgeable you are on the subject the better your chance at making the correct decision.

The initial work is undoubtedly the most important work, but continual meetings and monitoring is required. Take a look at Seed’s investment beliefs by clicking here.

Global markets lower before weekend

The JSE All Share had lost 1.37% by noon on Friday, as the basic materials sector led the local bourse downwards, following lower international markets.

The rand was trading at R7.53 to the US dollar at 12:00, recovering after reaching its lowest level in a month.

Gold had managed to edge up 0.18% to $1096.97 after yesterday’s losses, though US plans to limit financial risk taking weighed on investor confidence.

International markets

Yesterday, Obama proposed tighter bank restrictions that some investors felt would negatively impact profits, sending the Dow Jones down 2.01% and the Nasdaq lower by 1.12%.

The Nikkei fell 2.56% to hit a four-week low this morning, as technology shares slid after Shin-Etsu Chemical's bleak outlook. Exporters took a tumble as plans for new US bank restrictions served to strengthen the yen.

Hong Kong’s Hang Seng dived 0.65%, their lowest level in over three months, after
losses on US markets, falling commodity prices and fears of monetary tightening in China.

The FTSE 100 had risen 3.28% by noon, as stronger mining and telecommunication stocks boosted Britain’s main share index.

Share price news

Investment company Sabvest Limited (share code: SVN) rose 11% to sell at R5.55 a share at midday, as 315 shares were exchanged in one deal.

Due Diligence

At the beginning of the year it is perhaps prudent to revisit the need for investors to perform a thorough due diligence before making investment decisions. It is, in fact, a wise idea to perform due diligence procedures on most of your major decisions. Just as you won’t just book an appointment for a serious surgical operation with the first doctor that you walk past, so one shouldn’t necessarily put a large sum of money down on the first investment opportunity that presents itself.

In investments the due diligence process is typically comprised of quantitative and qualitative analysis. Arguably the more important part of the analysis, when choosing managers or consultants, is the qualitative portion. Quantitative work is then conducted in order to verify the qualitative analysis.

Essentially what an investor needs to do when choosing someone to assist them with their investments, be it a manager or consultant, is to find out how the manager will manage your investments, and then you need to back that up by ensuring that this is how he has managed investments in the past, i.e. he practices what he preaches.

It’s all very well that you want a manager who has a sound philosophy and process, and invests according to said philosophy and process, but you need to firstly decide what a sound philosophy and process is.

We contend that there are three important tenets when investing. They are:

• It is important that both you, as the investor, and the manager/consultant that you appoint have a long term time horizon. Investors often search for instant gratification, or the next quick buck, instead of taking a step back and looking at the big picture with a long term view. Making a quick buck might be lucrative over the short term, but if you don’t have your long term goals in mind (i.e. a comfortable retirement) you will most likely fall short of that goal “Failing to aim is aiming to fail”. It can be difficult not to partake in the latest fad while all those around are making the quick buck, but a robust strategy will help you stay the course.

Taking a look at the big picture and not trying to make a quick buck feeds into our second tenet:

• Valuation should be the cornerstone of including any investment in your portfolio. Before making your investment do what the father of value investing, Benjamin Graham, recommended. Warren Buffett quoted him, “Investing is most intelligent when it is most businesslike”. You need to ensure that the asset that you are investing into has an intrinsic value, and that you aren’t just buying it on the premise that you can sell it on at a profit. While buying to sell can prove profitable in the short run, it has a history of leading investors to the edge of the cliff when asset bubbles burst.

By having a value bias you reduce the risk of breaching our third tenet:

• Capital protection is vital to wealth creation. We’re not talking about protecting the nominal value of your investments on a daily basis, but rather to avoid permanent capital loss by investing in those asset classes that show the most value, and by diversifying your assets across asset classes, regions, and managers. Not all risks can be mitigated, but identifying the major ones can dramatically reduce the risk in your portfolio.

It is no coincidence that all three principles complement one another, and it is important that your manager doesn’t have conflicting beliefs. We have covered the ideological part of the type of manager that we are and seek. Tomorrow we will continue with a look at the operational side of the due diligence and the need for quantitative work. Take a closer look at Seed’s beliefs by clicking here.

Strong economic growth data from China sends global markets down

Local markets

The JSE All Share was 0.75% lower at midday on Thursday, with basic materials stocks leading the slide downwards. Analysts expect the local bourse to follow Wall Street amid the release of economic data and corporate earnings.

The rand was trading at R7.55 to the US dollar at noon, recovering some of yesterday’s losses and once again remaining within a range.

Gold cost $1105.67 an ounce at 12:00, losing 0.66% after the dollar strengthened on worry that solid GDP data from China would give the country more reason to tighten monetary controls.
International markets

Investors are Confident

Markets around the world have seen it all over the last 24 months. Economies have also been in flux. Yesterday Ian wrote about the global economy and today I will take a look at some market indicators, which as he mentioned can often not conform to one another.

Returns in the first half of 2008 were mixed as financial shares faltered with the system beginning to show some cracks, but resource shares roared up on the back of sky rocketing commodity prices. From around the middle of 2008 until the beginning of March 2009 we saw almost all shares being hammered in the global recession. Apparently only 3% of shares ended this period in the green! But as global stimulus measures started to take hold we saw an almighty rebound from the beginning of March until the end of the year.

What’s the likely outlook for the next two years?

For starters investors are becoming more and more confident as the markets rise. Apparently they are paying little heed to the fact that much of this rebound can be attributed to extremely loose monetary policy employed by many governments that can’t be sustained forever. If policy tightens (as a result of inflation increasing and economies rebounding quicker than expected) then the financial institutions need to open their taps to help stimulate the markets.

Research out of Bank of America Merrill Lynch indicates that investors are taking on above average risk for the first time since 2006. Key indicators in this survey are cash balances of fund managers, which continue to fall as their weighting to growth assets increases, the number of investors protecting themselves against market correction, which continues to drop, and more investors becoming bullish on company growth prospects.

As growth becomes the ‘consensus outlook’ one must become more wary of any blips on the road ahead. Some successful contrarian managers have already reduced the risk of their books.

Finally, a graphical illustration of this increase in confidence can be seen in the level of the VIX, which is now below its 20 year average, indicating that investors are comfortable investing in the market.

The VIX is often referred to as the ‘fear index’, but it could full well be called the ‘greed index’ when it gets to levels that are too low. Higher levels on the index relate to greater panic in the market, and incidentally what often turn out to be the best buying points in the market. Lower levels indicate investor comfort, and expectations that returns will continue to be attractive.

It is at times like these that investors need to be wary of what they invest into and why they make the investment. Have they done their research (there are still many sound investment opportunities) or are they afraid of missing out on more gains?

JSE follows Asian markets weaker

On Wednesday at midday, the JSE All Share had edged down 0.33% in line with losses on Asian markets. Financial stocks managed to buck the trend, up 0.97% amidst general losses.

A US dollar cost R7.48 at 12:00, continuing its third day of range-bound trading and ignoring a fall in the euro.

Brent crude oil cost $76.32 a barrel, recovering 1.76% after prices fell as investors expected a weak US crude inventory report and were concerned about further monetary tightening from China.

International markets

The Dow Jones rose 1.09% and the Nasdaq climbed 1.42% yesterday, as investors considered it likely that a potential Republican victory in Massachusetts' senate race could interrupt Obama's reform agenda. Technology shares lifted in response to solid earnings results from IBM.

The Nikkei fell 0.25% this morning after several securities firms were given a brokerage downgrade, and investors were cautious before corporate earnings season.

The Hang Seng lost 1.81% to almost hit its lowest close in a month. Losses were led by mainland banking shares after major banks were told to cut back lending by China's banking authorities.

The FTSE 100 had dipped down 0.28% by noon, after losses in mining stocks came on a shaken demand outlook in China.
Share price news

Top mover upwards at midday was Sable Holdings Limited (share code: SBL) in the real estate sector. Shares rose 528.21% after two deals totaling 600 shares, to sell at R98 a share. In the same sector, Fairvest Property Holdings Limited (share code:
FVT) gained 9.52% to trade at R1.15, after four deals of 27 000 shares.

Will the global economy expand in 2010

The economic group of Wells Fargo Securities asks this question against a backdrop that saw global financial markets seizing in the latter part of 2008 as Lehman Brothers failed and the global economy fell into its deepest recession in decades. By the first quarter of 2009, industrial production in the 30 countries that make up the OECD – Organisation for Economic Cooperation and Development had plunged more than 15% from year-earlier levels. This was dramatic.

It was exceptionally bad, but it could have been far worse. Let’s look at the recap and some of the points made by Wells Fargo.

Some of the major steps taken by the world’s major countries included recapitalisations of financial institutions, loan guarantees and increased deposit insurance.

Then central banks slashed interest rates to record low levels and starting printing, euphemistically called, “quantitative easing” in order to provide as much stimulus as possible.

They note that there are signs that the medicine is having its desired effect and that growth is starting to return to most countries.

Some of the points that they make about the global economy:

• OECD industrial production is up the up – but still below its February 2008 peak.

• Year on year GDP growth in China rebounded to a very strong 9% in the third quarter of 2009.

• Japan, Korea and Taiwan are showing positive growth rates

• Wells Fargo raised their estimate of the US 4th quarter annual GDP to 5,6%. Still they note that final demand remains weak and hence impacts on employment.

• Their estimate is that on a purchasing power basis, global GDP probably contracted by 1% in 2009 and they are projecting a 3,6% growth rate in 2010 before accelerating to 4% in 2011. This is still lower than the nearly 5% growth rate in 2004 – 2007.

• Inflation should still not be a problem until the global economy truly recovers, despite the unprecedented stimulus.

• The US dollar should appreciate modestly against major currencies, but not necessarily against “commodity” and emerging market currencies.

Source : Wells Fargo Securities

This generally upbeat outlook appears positive and it is, but as always we always need to distinguish between economic outlook and the outlook for asset prices. They may correlate and often they do, but many times over periods of say 12 – 24 months they don’t and it’s this non conformity that often causes confusion.

JSE quiet amid lack of economic data

Local markets

By midday on Tuesday, the JSE All Share had retreated 0.25%, offsetting earlier gains in resource stocks. The downward trend was led by losses in the oil and gas sector, though analysts expect a quiet day of trade due to the lack of new economic data.

The rand continued to be range bound, trading at R7.40 to the US dollar at noon after yesterday’s public holiday in the US.

Precious metals palladium and platinum reached their highest prices in several months today, costing $459.50 and $1632.50 respectively. The launch of US-based, exchange-traded funds backed by the metals helped to increase demand.
International markets

US markets were closed yesterday for Martin Luther King Day.

Japan's Nikkei average slid 0.83% this morning on profit taking by investors after a recent rally, and exporters were hit by a stronger yen.

Britain’s FTSE 100 had fallen 1.09% by noon, weighed on by losses in banking shares before the release of corporate earnings from Citigroup. Investors were also concerned about UK inflation data.
Share price news

Divergent Returns

Reflecting back on 2009 we can see that the different asset classes returned widely varying returns over the period. Over time it is natural that different assets will perform well or poorly at different times as they all have their own unique attributes. Sure, there will be times when most asset classes perform well, and again when most don’t do too well, but there is usually at least one asset class that produces real (inflation beating) returns over any rolling 12 month period.

Source: SIM

The above chart shows the returns of selected asset classes for each calendar year in the ‘noughties’. You will notice that not once does inflation head the chart, although it does sit near the bottom quite often. The casual observer might therefore point out that it is relatively simple to earn a decent real return. This observer would need to be aware of two points in particular.

The first is that these returns are all quoted before tax and other costs, all gains are taxed in the hands of the investor, with the tax rate on income gains (bonds and cash) typically being higher than the tax rate on capital gains. Return to the investor would therefore typically be below those quoted above.

The second point is that the investor would need to avoid being heavily invested in an asset class when there’s significant value destruction. This happened in 2002 to those investors who invested in offshore equities and were hammered both by weakening markets and a strengthening rand, and again in 2008 when all risk assets suffered. Capital protection (i.e. avoiding severe reduction in value) is crucial to staying ahead of inflation over the long term.

It is clear that local growth assets (i.e. real estate and equity) have spent most of the time near the top of the pile, but that ‘Balanced’ (which is a combination of local asset classes and 15% offshore) is more consistently near the top of the pile.

We do not know the exact order that these assets will fill in years to come, but solid research can improve the probability of getting a good idea. We then use balanced funds (of varying risk profiles) to ease the ride.

US, Asian markets down after JP Morgan reports losses

Local markets

At midday on Monday, the JSE All Share had edged up 0.25% after a flat morning’s trade, as no new information was expected to bring direction. Gains in basic materials shares gave support to the local bourse.

The rand was trading at R7.38 to the US dollar at noon, remaining within a range as American traders were away for a public holiday in the US.

Gold cost $1135.50 an ounce, rising 0.66% though further gains were limited by dollar strength. The increase in price was supported by physical buying from gold jewellers in India.

International markets

On Friday, the Dow Jones closed 0.94% lower while the Nasdaq lost 1.24%. Investors became skittish after JPMorgan Chase & Co reported serious fourth-quarter loan losses, and were concerned about bank profits. Consumer confidence for the beginning of January was lower than expected, also affecting share sales.

Japan's Nikkei average lost 1.16% this morning, after JPMorgan Chase & Co’s loan losses report spurred broad-based selling and investors became concerned that the market was overheated.

The Hang Seng fell 0.9% following losses on US markets, closing lower for a fifth session in a row. Investors were on the alert for further US bank earnings reports.

The FTSE 100 had risen 0.54% by 12:00, with gains in mining stocks after metal prices strengthened. Investors bought up shares of companies involved in potential takeovers, which helped to overcome losses in banking and oil shares.

Share price news

Afrocentric Investment Corporation-PRF (ACTP) soared an enormous 42.86% to sell at R5 a share at noon. 354 shares were traded in one deal.

Famous Brands Limited (FBR) in the restaurants and pubs sector climbed to R25 a share, a gain of 5.04% after 10 deals exchanged 14 290 shares.

Hwange Colliery Company Limited (HWA) fell 17.14% to sell at R2.90 a share, after one deal traded 3 365 shares.

In the farming and fishing sector, Afrocentric Investment Corporation Limited (ACT) fell to R1.62 a share, a loss of 10% after four deals traded 10 292 shares.

Looking East

Yesterday we took a look at how Europe is doing, but it churlish not to take a look to the East as well. The graph below neatly (I think) encapsulates the changing of the guard.

Source: Visio Capital

Just last night we were discussing around the dinner table how various businesses and indeed industries (textiles to name just one) in South Africa are under threat from the East. Many businesses have been liquidated as a result of the rise in China and some industries are slowly disappearing. As mentioned yesterday China is now the world’s largest exporter, exporting goods to the value of around US $ 1.2 trillion (i.e. $ 1 200 000 000 000) in 2009 alone!

A large portion of the exporters are poor quality, but there’s no doubt that as China continues to industrialise the quality of goods will improve. Right now they are more interested in gaining entry into new markets and increasing their share of the pie.

In the past there were sayings like ‘Jap crap’, and I recall many people refusing to buy any electronics out of Korea unless they were sold at bargain basement prices. Nowadays these countries are market leaders in many industries and their products are often sold at a premium, and I have no doubt that it will be the same with China in due course.

Companies and industries under threat in SA need to look at their business model and decide whether they can compete with China, or perhaps alter their model to remain in business. If the company can’t do this and isn’t protected by the government (although even the efficacy of government protection is debateable) there is a large likelihood that they will eventually be forced out of business.

South Africa can ill afford job losses so government and private industry alike needs to look at developing those labour intensive industries where SA has a competitive advantage to maximise job creation. Ultimately cheaper goods for South African consumers (whether produced locally or abroad) is good for the local consumer.

It won’t be easy, but if the government can balance job creation and inflation moderation (through importing more competitively priced goods) then they will have done a good job. It is clear that China is a waking giant and it would be foolish for South Africa to ignore this giant.

Global trade cautious ahead of US consumer confidence data

There was little action on the markets this morning, with the JSE All Share flat, 0.09% lower at midday amongst mixed trade. The local bourse seemed to await direction from overseas markets.

The rand was trading at R7.39 to the US dollar at noon, staying within a range. Traders were cautious ahead of US consumer confidence data, which will be released later today.

Oil cost $77.34 a barrel at 12:00, recovering 0.44% after an initial slide that came after the US dollar strengthened. However, demand for oil in developed countries continues to be weaker.

International markets

On US markets yesterday, the Dow Jones closed 0.28% higher and the Nasdaq rose 0.38%. Investors banked on tech shares gaining before Intel’s quarterly results were released. The stronger closes came in spite of a fall in retail sales for December and an increase in unemployment. Analysts suggest that the cavalier trading behavior stems from confidence that government stimulus will continue regardless.

The Nikkei finished 0.68% higher this morning, as gains in technology shares after Intel’s better-than-expected profit announcement lifted the Japanese index.

The Hang Seng slipped 0.29% as investors took profits, cancelling gains in technology stocks that came after Intel’s profit announcement.

Britain’s FTSE 100 was up 0.27% at midday, led by gains in mining and bank shares. Further action was limited as investors awaited results from US firm JPMorgan Chase & Co.

A Look at Europe

Many eyes follow the news out of the US purely as it is still has the largest economy in the world, and also because Americans are well versed in getting the rest of the world to know about what’s happening in their country. South Africa’s biggest trading block is, however, Europe. So while each country’s contribution is smaller than the likes of the US and China, as a collective they are very important.

The depth of the recession in Europe will have been exacerbated by the depth of the recession in Germany, Europe’s largest economy. Preliminary numbers out of Germany indicate that the economy had its deepest recession since World War II contracting by 5% in 2009. This figure was down from 2007 and 2008 growth of 2.5% and 1.3% respectively. The export dependant country had a tough time as world trade froze for much of the year. Exports fell by some 14.7% and companies also spent less in an attempt to remain solvent. One victim of the downturn in exports was Germany’s spot as the number 1 exporting country in the world. China’s better than expected rebound in exports in December helped to push Germany to number 2 (China grew exports by around 17% in December).

With Europe’s largest economy still recovering it was unsurprising that the European Central Bank ( ECB ) decided today to keep interest rates at an all time low of 1%. This has been their decision at each meeting since they last dropped rates in May last year. Of the four ‘major’ developed economies (US, UK, Europe, Japan) Europe has the highest interest rate, but they have dropped them by 3.25% in an attempt to boost the economies of the Euro countries. The ECB is expected to keep rates low for a while as they project that the underlying Euro economy will only grow by 0.8% this year, and 1.2% in 2011 which isn’t quick enough to start to raise rates. Inflation too remains low (which allows them to keep interest rates low) and the projection there is for 1.3% in 2010 and 1.4% next year.

One of Europe’s ‘problem children’ Italy announced that industrial output had edged up 0.2% in November and October’s number was revised up from 0.5% to 0.7%. This compared to Germany and France’s 0.7% and 1.1% increase respectively. Italy continues to battle along, but at least is moving in a positive direction. In the UK, industrial production improved by a measly 0.4% during November, slightly ahead of expectations. The year on year decline in output has improved from a low of -14% up to -6% but is still some 14% off its high reached in 2008.

It is plain to see from many of the countries in Europe that while the recession might officially be over, output and GDP levels haven’t yet reached their highs and will most likely take a while before reaching them.

While most European economies are struggling, bankers in London are complaining about the increase in their marginal tax rate from 40% to 50%. This increase will see, according to KPMG, bankers earning GBP 1 million a year paying an extra GBP 87,588 in taxes. These are big numbers!

Gains in basic materials sector lifts JSE

Local markets

At midday, the basic materials index had gained 0.95%, leading the JSE All Share upwards by 0.76%. Global investor sentiment was optimistic following good export data from China, and positive US corporate results.

The rand had strengthened to sell at R7.41 to the US dollar at noon, remaining range bound as traders awaited US retail sales for December, due out later today.

Gold rose 0.71% to sell at $1136.05 an ounce, continuing yesterday’s gains after a weaker dollar encourage short-covering and physical buying. Trade was still cautious however ahead of the European Central Bank's policy decision and US data.

International markets

Yesterday, the Dow Jones inched up 0.5% while the Nasdaq climbed 1.12%, after investors bet on pressured technology and financial shares before the release of earnings from Intel Corp and JPMorgan Chase & Co (JPM.N).

Japan's Nikkei average lifted 1.61%, reaching its highest close in 15 months after tech companies gained on hopes that upcoming US corporate earnings will show an improvement for Japan’s main trading partner.

Hong Kong shares fell 0.15% after earlier gains came on positive closes on US markets, which boosted investor confidence. Investors bought shares in Foxconn and Lenovo, after news of rising sales of personal computers.

Diamond company Trans Hex Group Limited (share code: TSX) saw the exchange of 6 252 shares in four deals, sending the share price down 16.12% to sell at R4.11 at midday. Argent Industrial Limited (share code: ART) lost 4.44% after two deals of 1 101 shares to trade at R8.60 a share.

Same Destination, Different Route

I came across an interesting graph yesterday that showed the performance of the local equity market (as represented by the FTSE/JSE All Share) compared to the local bond market (ALBI) over the past 3 years. Interestingly these two very different assets classes have performed almost exactly the same over this discrete period with total returns of 6.53% pa and 6.48% pa respectively!

Source: Investec, I-Net Bridge

The route that they both took to reach this return could not be more different. The bond market return for the first year and a half was negative. An inflation rate that was getting out of control on the back of high commodity prices ate away at the capital value of the bonds, with the relatively low coupons not able to bring the total return into positive territory. Over this same period the resource heavy ALSI was powering away led by commodity shares.

While financial and industrial shares had been struggling for some time the resource shares kept at it until the end of May 2008 when they joined the capitulation seen in world markets. The ALSI subsequently dropped by over 40% over the next 6 months and took until the beginning of March 2009 to begin any meaningful recovery.

On the other hand bonds got a fillip in July 2008 when markets began to realise that commodity prices could fall and that inflation would begin to fall rapidly. They got a further boost towards the end of the year when it appeared as if ‘the world would end’ and all money rushed for safe haven assets – which includes government bonds. Bonds struggled again in 2009, posting a negative calendar year return for only the second time (-1%) ever while equities rebounded by over 50% from their lows in March 2009.

As can be seen from the chart getting the asset allocation of your portfolio correct is an important step in your investment process.

China’s tighter monetary policy weighs on international markets

Local markets

On Wednesday at 12:00, the JSE All Share had improved by 0.07% despite lower closes on most international markets, supported by small gains in industrial stocks.

The rand was trading at R7.41, strengthening slightly after falling to its lowest level in two weeks yesterday, when investors divested themselves of commodity currencies following China’s tighter bank reserve requirements.

Oil was selling at $78.32 a barrel, continuing to fall by 0.86% after reports of an unexpected increase in US inventories, despite a severe winter in parts of the USA and Europe.

International markets

On US markets, the Dow Jones dipped by 0.34% while the Nasdaq lost 1.30% after a broad selloff yesterday. Financial stocks took a beating after investors worried about a potential government levy on banks, and poor results from Alcoa Inc dented hopes for economic recovery.

In Japan, the Nikkei average closed 1.32% lower this morning, as investors took profits and a stronger yen took its toll on exporter stocks. Resource shares tumbled after China's tightening of monetary policy raised concern for a reduction in demand.

The Hang Seng finished 2.59% down, achieving its largest one-day percentage loss in over a month after investor anxiety that China's tighter reserve requirement might slow growth in the economy.

The FTSE 100 had fallen 0.09% by noon as banking stocks came under pressure on the back of a profit warning from Societe Generale. The UK bourse took direction from losses in Asia.

Share price news

Auto parts company Dorbyl Limited (share code: DLV) climbed 15.65% to sell at R3.99 a share by midday, after 6 925 shares were exchanged in 4 deals. Gijima AST Group Limited (share code: GIJ) in the computer services sector rose to R1.02 a share, a gain of 5.15% after 1 103 325 shares were traded in 33 deals.

In the building and construction materials sector, Ceramic Industries Limited (share code: CRM) fell 9.09% one deal of two shares, which sent the price down to R100. Eastern Platinum Limited (share code: EPS) lost 7.12% as shares dropped to R8.61, after 45 192 shares were exchanged in 30 deals.

Daily Equity Report Tuesday 23 January 2010

2010/01/12 20:53:46
The JSE closed off 1.02% at 28058 with value traded at R 13.33 billion. Declines led advances 216 to 137 with 79 shares unchanged out of 432 active. Mining closed off 1.85% at 35662, while Industrials were off 0.59% at 25510 and financials ended the day up 0.1% at 19419.

The best performing sectors of the day were COAL MINING up 2.6% at 23788, FTSE/JSE All Africa ex SA 30 with S A Rand values up 2.2% at 57 and FTSE/JSE Alt X Index up 1.4% at 1077, while the worst were Forestry & Paper Index down 2.5% at 11289, FTSE/JSE RAFI ALLSHARE INDEX down 2.4% at 5699 and Health Care Equipment & Services Index down 2.4% at 33771.

There were 6 new 12 month highs today, including Zeder which closed up 1.5% at 200, Masonite up 1.2% at 4250 and Arm up 0.8% at 18000.

Of the major stocks Mtn was off 2.31% at 10550, Billiton lost 1.96% at 24829, Anglo moved down 2.85% at 33480, Implats was unchanged at 22250, Sasol was off 1.97% at 31175.

Some of the top gainers included Telemastr up 11.11% at 200 , Ceramic up 10% at 11000 , some of the losing shares included Witsgold off 12.04% at 6685 and Metorex down 10.19% at 485

The Dow was down 0.7% at 10587.96 and the S&P 500 down 1.2% at 1132.90 a few moments ago.

Gold was off 1.9% at $ 1127.40/oz

The rand was last trading at R 7.44 to the dollar, R 11.99 to the pound and R 10.78 to the Euro.

Same Destination, Different Route

I came across an interesting graph today that showed the performance of the local equity market (as represented by the FTSE/JSE All Share) compared to the local bond market (ALBI) over the past 3 years. Interestingly these two very different assets classes have performed almost exactly the same over this discrete period with total returns of 6.53% pa and 6.48% pa respectively!

Source: Investec, I-Net Bridge

The route that they both took to reach this return could not be more different. The bond market return for the first year and a half was negative. An inflation rate that was getting out of control on the back of high commodity prices ate away at the capital value of the bonds, with the relatively low coupons not able to bring the total return into positive territory. Over this same period the resource heavy ALSI was powering away led by commodity shares.

While financial and industrial shares had been struggling for some time the resource shares kept at it until the end of May 2008 when they joined the capitulation seen in world markets. The ALSI subsequently dropped by over 40% over the next 6 months and took until the beginning of March 2009 to begin any meaningful recovery.

On the other hand bonds got a fillip in July 2008 when markets began to realise that commodity prices could fall and that inflation would begin to fall rapidly. They got a further boost towards the end of the year when it appeared as if ‘the world would end’ and all money rushed for safe haven assets – which includes government bonds. Bonds struggled again in 2009, posting a negative calendar year return for only the second time (-1%) ever while equities rebounded by over 50% from their lows in March 2009.

As can be seen from the chart getting the asset allocation of your portfolio correct is an important step in your investment process.

Gains in the industrial sector helped the Dow Jones to close 0.43% higher and the S&P 500 to finish 0.17% up on US markets yesterday. Positive trade data from China served to sustain optimism for world economic recovery, though the Nasdaq lost 0.21% after investors took profits.

Japan's Nikkei average rose 0.75% this morning to reach its highest level for 15 months. After China’s data showed record imports of some commodities and better-than-expected exports, resource and machinery stocks climbed.

The Hang Seng fell 0.38% after volatile trade as continuing anxiety over new lending regulations from Beijing weigh on financial stocks.

Britain's FTSE 100 was 0.63% lower at midday, as weaker commodity and banking stocks offset gains in food retailers after Tesco published a solid update.

Share price news

In the building and construction materials sector, Ceramic Industries Limited (share code: CRM) rose to R110 a share, a gain of 10% after 75 shares were sold in one deal.

A Decade Completed

The end of last year marked the end of the first decade in the 21st Century. Investors experienced almost every kind of emotion during the decade, from the heights of the Global TMT (Technology Media and Telecommunications) bubble that burst at the beginning of the decade, to Geopolitical events, to booming markets, the rise of China, and in the latter part of the decade the bursting of the real estate bubble and subsequent liquidity freeze.

The first decade of the century was packed with events, and the second decade will probably experience events even more variable than the first as the world becomes smaller with improved communication. Whereas in the past news took a while to flow from one side of the globe to the other now we are constantly reminded that news transfer has become almost instantaneous. This affects the way that capital markets operate because the market participants react immediately when new ‘information’ is received, often before thorough analysis is conducted.

During the last decade global developed markets struggled in general, but this was not the case in emerging markets, of which South Africa is one. The local ALSI returned 16.2% per annum over the decade which compares favourably to global equities which were only up 0.5% pa in rand (losing 1.3% pa in USD) and emerging market equities up 9.2% pa in rand or 7.3% in USD.

Below is a chart of how the different South African asset classes performed during the decade. The return profile is how it should be with risky equities outperforming less risky bonds and cash, which in turn gave positive real returns for taxes and other expenses.

In periods of distress it is natural that one battens down the hatches to survive, and while this is appropriate at some stages one needs to avoid retaining a myopic approach for too long a period. Putting your head in the sand is a sure way to miss out on new opportunities. In this regard parking your investment in cash can be a strategy that has some merits when growth assets are extremely expensive, but is the surest way to destroy real wealth over time.

As we move into the new year, a new decade, and hopefully out of a recession, now is the time to be keeping your eye out for new opportunities. We don’t advocate a gung ho approach to investing or indeed other activities, but rather a more measured disciplined approach based on sound logic, reasoning, and research.

The team at Seed Investments would like to wish you all the best for 2010.

Positive trade data from China boosts global markets

Local markets

The JSE All Share was up by 1.05% at noon, as the market took direction from positive closes in Asia. Basic materials and gold mining stocks lead the upward charge with gains of 2.63% and 1.66% respectively.

The rand was trading at R7.34 to the US dollar, strengthening slightly in line with a stronger euro.

Gold had risen 2.69% to sell at $1156.30 an ounce at 12:00. Better-than-expected Chinese trade data, higher oil prices and a fall in the US dollar helped to support the precious metal’s gains.

International markets

The Dow Jones finished 0.11% up and the Nasdaq 0.74% stronger on Friday, overcoming earlier losses as investors decided that poor employment statistics for December would not interfere with economic recovery.

The Nikkei index was closed today for the ‘coming of age’ public holiday.

Daily Equity Report Friday 8 January 2010

2010/01/08
The JSE closed up 0.89% at 28267 with value traded at R 8.75 billion. Advances led declines 236 to 105 with 70 shares unchanged out of 411 active. Mining closed up 1.2% at 35715, while Industrials were up 0.91% at 25928 and financials ended the day up 0.15% at 19535.

The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 46.5% at 3003, FTSE/JSE RAFI 40 up 26.3% at 5893 and FTSE/JSE AFRICA ALTX 15 up 5.9% at 348, while the worst were FTSE/JSE All Africa ex SA 30 with S A Rand values down 42.3% at 55, FTSE/JSE All Africa ex SA 30 with US$ values down 28.8% at 61 and FTSE/JSE All Africa 40 Index with S A Rand values down 19.4% at 70.

There were 22 new 12 month highs today, including Trnshex which closed up 9.5% at 449, Cml up 8% at 950 and Mondiplcp up 5.6% at 4455.

Of the major stocks Mtn gained 1.11% at 10930, Implats was up 3.17% at 21700, Anglo moved up 1.37% at 34000, Sasol ended up 1.19% at 30899, Stanbank lost 0.01% at 10299.

Biggest gainers of the day where Brc up 15.79% at 110 , Sephaku up 14.29% at 400 , some of the losing shares included Ceramic off 13.79% at 10000 and Metmar down 4.88% at 370

The Dow was off 0.2% at 10585.17 and the S&P 500 off 0.1% at 1140.51 a few moments ago.

Gold was up 0.2% at $ 1132.85/oz

The rand was last trading at R 7.36 to the dollar, R 11.73 to the pound and R 10.56 to the Euro.

Global markets await US jobs data for direction

At noon on Friday, gains in industrial and gold mining stocks led the JSE All Share upwards by 0.79%. Investor sentiment seems positive ahead of US jobs data which is due out later today.

The rand was selling at R7.42 to the US dollar, weakening slightly after yesterday’s gains as all eyes were on the imminent release of US job statistics.

Brent crude oil cost $80.70 a barrel, down 0.37% after yesterday’s losses on concern about China’s potentially tighter monetary policy. Traders were awaiting jobs data from the US that would indicate oil demand and progress of economic recovery.

International markets

The Dow Jones and Nasdaq finished lower yesterday, after the dollar grew stronger on news of a marginal increase in US unemployment statistics.

The Nikkei average closed 1.09% higher this morning, reaching a 15-month high after news of increasing global demand for high-tech products. Further gains were limited as investors took profits before the release of U.S. jobs data.

The Hang Seng rose 0.12% as earlier gains were eroded by investor concern that China’s monetary policy may become tighter and reduce liquidity, limiting growth in lending and property sales.

Britain's FTSE 100 had lifted by 0.15% at midday, as bank stocks gained on positive sentiment. Trading was fairly quiet ahead of the release of US jobs data.

Daily Equity Report Thursday 7 January 2010

The JSE closed down 0.22% at 28018 with value traded at R 9.67 billion. Declines led advances 168 to 156 with 83 shares unchanged out of 407 active. Mining closed up 0.14% at 35292, while Industrials were off 0.58% at 25695 and financials ended the day down 0.14% at 19507.

The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 45.1% at 2973, FTSE/JSE RAFI 40 up 25.1% at 5838 and Venture Capital up 3.2% at 71, while the worst were FTSE/JSE All Africa ex SA 30 with S A Rand values down 42.6% at 55, FTSE/JSE All Africa ex SA 30 with US$ values down 29% at 61 and FTSE/JSE All Africa 40 Index with S A Rand values down 19.8% at 70.

There were 16 new 12 month highs today, including Eastplats which closed up 21.3% at 850, Ellies up 8.6% at 190 and Pallinght up 5.7% at 540.

Of the major stocks Mtn was off 2.39% at 10810, Billiton moved up 0.71% at 24573, Anglo gained 0.42% at 33539, Implats moved down 1.71% at 21033, Sasol was off 0.56% at 30535.

Best performers of the day were Eastplats up 21.26% at 850 , Anooraq up 15.71% at 810 , while the major losers were Compclear down 10.53% at 255 and Dorbyl down 9.77% at 360

The Dow was off 0.1% at 10559.24 and the S&P 500 off 0.2% at 1135.27 a few moments ago.

Gold was off 0.5% at $ 1133.17/oz

The rand was last trading at R 7.37 to the dollar, R 11.74 to the pound and R 10.57 to the Euro.

JSE tracks weaker Asian markets lower

The JSE All Share had fallen 0.57% by 12:00, with losses across the board. The local bourse tracked lower Asian markets and trade continued to be thin.

The rand was selling at R7.36 to the US dollar at noon, stabilizing against the American currency after yesterday’s strength.

Gold lost 0.77% to sell at $1129.25 an ounce, retreating after yesterday’s three-week high. Investors became cautious before the release of US non-farm payroll statistics for last month, to be published this week.

International markets

On US markets, the Dow Jones inched up 0.02% but the Nasdaq closed 0.33% lower yesterday. The mixed results came after the Federal Reserve expressed concern about weakness in the labour markets, and the service sector reported an improvement that was less than expected.

Japan's Nikkei average fell 0.46% this morning, after Canon was downgraded by a brokerage, and Japan Airlines plummeted after news that it would be reporting a $13.3 billion net loss. Commodity-related shares shaved off gains after China's central bank’s surprise rate increase.
Hong Kong’s Hang Seng finished 0.66% down on profit taking, and financial stocks took a hit after the Chinese central bank restricted liquidity.

The British FTSE 100 had slipped 0.28% by midday after losses in banking and mining counters, as investors tread carefully before the announcement of the UK interest rate decision.

JSE tracks weaker Asian markets lower

The JSE All Share had fallen 0.57% by 12:00, with losses across the board. The local bourse tracked lower Asian markets and trade continued to be thin.

The rand was selling at R7.36 to the US dollar at noon, stabilizing against the American currency after yesterday’s strength.

Gold lost 0.77% to sell at $1129.25 an ounce, retreating after yesterday’s three-week high. Investors became cautious before the release of US non-farm payroll statistics for last month, to be published this week.

International markets

On US markets, the Dow Jones inched up 0.02% but the Nasdaq closed 0.33% lower yesterday. The mixed results came after the Federal Reserve expressed concern about weakness in the labour markets, and the service sector reported an improvement that was less than expected.

Japan's Nikkei average fell 0.46% this morning, after Canon was downgraded by a brokerage, and Japan Airlines plummeted after news that it would be reporting a $13.3 billion net loss. Commodity-related shares shaved off gains after China's central bank’s surprise rate increase.
Hong Kong’s Hang Seng finished 0.66% down on profit taking, and financial stocks took a hit after the Chinese central bank restricted liquidity.

The British FTSE 100 had slipped 0.28% by midday after losses in banking and mining counters, as investors tread carefully before the announcement of the UK interest rate decision.

Daily Equity Report Wednesday 6 January 2010

2010/01/06

The JSE closed up 0.29% at 28080 with value traded at R 4.63 billion. Advances led declines 160 to 123 with 75 shares unchanged out of 358 active. Mining closed up 0.88% at 35243, while Industrials were down 0.03% at 25845 and financials ended the day off 0.29% at 19534.

The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 45.3% at 2977, FTSE/JSE RAFI 40 up 25.4% at 5853 and Gold Mining up 2.5% at 2504, while the worst were FTSE/JSE All Africa ex SA 30 with S A Rand values down 43.6% at 54, FTSE/JSE All Africa ex SA 30 with US$ values down 29.9% at 60 and FTSE/JSE All Africa 40 Index with S A Rand values down 20.7% at 69.

There were 14 new 12 month highs today, including Brait which closed up 5.1% at 2170, Masonite up 5% at 4200 and Metorex up 4.8% at 505.

Of the major stocks Mtn lost 0.67% at 11075, Anglo ended up 1.15% at 33400, Naspersn was off 0.33% at 30100, Implats was off 1.83% at 21400, Billiton moved up 0.86% at 24400.

Biggest gainers of the day where Cenrand up 15.63% at 185 , Amecor up 9.57% at 126 , some of the losing shares included Afro-c down 15.64% at 151 and Jasco down 5.41% at 175

The Dow was down 0.1% at 10562.95 and the S&P 500 off 0.1% at 1135.07 a few moments ago.

Gold was up 1.6% at $ 1134.20/oz

The rand was last trading at R 7.30 to the dollar, R 11.65 to the pound and R 10.51 to the Euro.

Gold mining shares continue to boost JSE

Local markets

The JSE All Share had inched up by 0.32% at midday on Wednesday, with gains in gold mining stocks leading the rally. The local bourse sought direction from European markets, encouraged by stronger closes in Asia.

The rand was trading slightly lower at R7.32 to the US dollar at 12:00, retreating after almost reaching its highest level in three months yesterday.

Gold was selling at $1125.92 an ounce, up 0.8% however a stronger dollar-euro exchange rate limited further gains.

International markets

Yesterday, the Dow Jones closed 0.11% lower while the Nasdaq managed to cling on to 0.01% in the black. Initial gains that came as Ford Motor Co reported higher factory orders and vehicle sales were offset by a drop in US pending home sales.

Japan's Nikkei index rose 0.46% this morning to hit its highest close in 15 months. Banking shares gained but further increases were limited as investors took profits after recent rallies.
The Hang Seng finished 0.62% higher, as exporter stocks rose on renewed investor hopes for economic recovery and improved turnovers for 2010.
The FTSE 100 had lost 0.22% by noon Johannesburg time, after losses in energy and retail shares weighed on the British bourse.

Also in the platinum sector but on its way down was Platmin Limited (share code: PLN) whose shares fell 9.92% to R9.90, after 17 deals exchanged 36 988 shares.
In the publishing and printing sector, Caxton & CTP Publishers and Printers (share code: CAT) slid 4.93% to trade at R14.26 a share, after 1 365 shares were exchanged in 5 deals.

Daily Equity Report Tuesday 5 January 2010

The JSE closed up 0.37% at 27999 with value traded at R 8.68 billion. Advances led declines 207 to 119 with 86 shares unchanged out of 412 active. Mining closed up 0.57% at 34936, while Industrials were down 0.37% at 25853 and financials ended the day up 1.41% at 19589.

The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 44.3% at 2957, FTSE/JSE RAFI 40 up 25.3% at 5845 and Venture Capital up 18.8% at 71, while the worst were FTSE/JSE All Africa ex SA 30 with S A Rand values down 44.4% at 53, FTSE/JSE All Africa ex SA 30 with US$ values down 30.9% at 59 and FTSE/JSE All Africa 40 Index with S A Rand values down 21.5% at 68.

There were 27 new 12 month highs today, including Mvelares which closed up 7.4% at 5200, Northam up 6.4% at 5100 and Reunert up 4% at 6050 while there were 1 new lows of which Cenrand topped the list, down 13% at 160.

Of the major stocks Mtn moved down 2.75% at 11150, Implats gained 3.07% at 21800, Anglo gained 0.52% at 33020, Sabmiller was off 2.4% at 21375, Sasol was up 0.71% at 30550.

Best performers of the day were Lonafric up 24% at 155 , Village up 10.89% at 112 , while the major losers were Cenrand down 13.04% at 160 and Platmin down 8.34% at 1099

The Dow was off 0.1% at 10575.57 and the S&P 500 up 0.3% at 1136.43 a few moments ago.

Gold was up 0.1% at $ 1121.10/oz

The rand was last trading at R 7.31 to the dollar, R 11.66 to the pound and R 10.52 to the Euro.

Rising commodity prices boost global resource stocks

On Tuesday at 12:00, gains in the gold mining sector had helped to lift the JSE by 0.28%. Although volumes continued to be low, rising commodity prices boosted resource shares.

The rand had strengthened to trade at R7.30 to the US dollar at noon, as the dollar bobbed about and US equities looked to open higher today, which inspired greater risk appetite amongst investors.

Oil cost $80.19 a barrel, rising 1.51% to continue its recent rally following the unexpectedly cold weather in parts of the US and Europe, which increased demand for heating fuel.

International markets

On US markets yesterday, the Dow Jones rose 1.5% and the Nasdaq climbed 1.73% to reach their highest closes in 15 months, after the manufacturing sector showed evidence of growth for a fifth month in a row.

In Japan, the Nikkei average closed 0.25% up this morning after gains across the board. Investor confidence was given a lift by news of growth in the US manufacturing sector, which is hoped to indicate global economic recovery.

The FTSE 100 had lost 0.06% by midday, retreating after yesterday’s rally as gains in banking stocks just managed to offset by losses in retail and pharmaceutical stocks.

Share price news

The top mover up at midday, Village Main Reef Gold Mining Company Limited (share code: VIL) was selling at R1.12 a share, after one deal of 3 000 shares boosted the share price by 10.89%. IPSA Group (share code: IPS) rose 7.89% to sell at R1.64, after three deals exchanged 8 420 shares.

Daily Equity Report Monday 4 January 2010

2010/01/04
The JSE closed up 0.83% at 27895 with value traded at R 2.92 billion. Declines led advances 162 to 157 with 63 shares unchanged out of 382 active. Mining closed up 2.18% at 34738, while Industrials were off 0.15% at 25949 and financials ended the day off 0.05% at 19316.

The best performing sectors of the day were FTSE/JSE SHARIAH ALL up 44% at 2951, FTSE/JSE RAFI 40 up 24.3% at 5801 and Platinum Mining up 3.1% at 84, while the worst were FTSE/JSE All Africa ex SA 30 with S A Rand values down 44.7% at 53, FTSE/JSE All Africa ex SA 30 with US$ values down 31.1% at 59 and FTSE/JSE All Africa 40 Index with S A Rand values down 21.8% at 68.

There were 9 new 12 month highs today, including Fortressb which closed up 14.5% at 190, Aquarius up 5.3% at 5050 and Bcx up 3.6% at 570.

Of the major stocks Anglo was up 2.82% at 32850, Mtn ended down 2.76% at 11465, Billiton gained 1.96% at 24165, Gfields gained 1.4% at 9935, Naspersn was up 0.33% at 30100.

Biggest gainers of the day where Fortressb up 14.46% at 190 , Arb up 7.69% at 210 , some of the losing shares included Comair off 11.67% at 265 and Ips off 10.59% at 152

The Dow was up 1.4% at 10572.47 and the S&P 500 up 1.5% at 1131.38 a few moments ago.

Gold was up 2.1% at $ 1122.15/oz

The rand was last trading at R 7.29 to the dollar, R 11.71 to the pound and R 10.52 to the Euro.

Trade slow in first session of 2010

Local markets

At midday on the first session of 2010, the JSE All Share had edged up 0.5%, led by gains in the basic materials sector. Analysts expect the local bourse to take a lead from mixed international markets as investors return slowly from the holidays.

The rand was trading at R7.34 to the US dollar, recovering slightly after earlier losses that came as the dollar strengthened.

Oil cost $79.08 a barrel at noon, hovering around the $80 mark after news that Russia ceased supplying oil to Belarus, and on further cold weather in the US.

International markets

The US markets were closed on Friday for the New Year’s Day public holiday.

This morning, Japan’s Nikkei index closed 1.03% higher, after exporter stocks gained on the back of a weaker yen, and fewer unemployment claims in the US boosted hopes for an economic comeback.